China Markets

China warns of bubbles in foreign markets as it studies measures to manage capital inflows

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Key Points
  • China's top banking and insurance regulator expressed wariness of the risk of bubbles bursting in foreign markets.
  • As the economy has become highly globalized, foreign capital flowing into China will increase significantly due to economic recovery and attractive asset prices, said Guo Shuqing, head of the China Banking and Insurance Regulatory Commission.
  • Guo also said relatively big bubbles is the core issue facing China's property sector.
A shareholder watches the stock market in a securities business hall. Nanjing, Jiangsu Province, China, 6 July 2020.
Costfoto | Barcroft Media via Getty Images

China's top banking and insurance regulator expressed wariness of the risk of bubbles bursting in foreign markets, and said Beijing is studying effective measures to manage capital inflows to prevent turbulence in the domestic market.

Global markets are starting to see side effects of fiscal and monetary policy steps in response to the Covid-19 pandemic, said Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, at a news conference on Tuesday.

"Financial markets are trading at high levels in Europe, the U.S. and other developed countries, which runs counter to the real economy," Guo added.

As the economy has become highly globalized, foreign capital flowing into China will increase significantly due to economic recovery and attractive asset prices, said Guo, adding that Beijing is studying plans to manage the inflows to prevent turbulence in the domestic market.

Guo also said relatively big bubbles is the core issue facing China's property sector.

"It is quite dangerous that many people are buying homes not for living in, but for investment or speculation."

If the housing market goes down, the value of properties held by people will suffer from huge losses, leading to a vicious cycle of unpaid mortgages and economic chaos, he said.